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Is Residential Solar on the Decline in the U.S.? A Market Correction, Not Collapse
U.S. residential solar installations are declining in 2025. Learn what’s driving the downturn—and why the long-term outlook remains
The once red-hot U.S. residential solar market is showing signs of cooling off—but don’t count it out just yet. A combination of rising interest rates, regulatory changes, and supply chain challenges have led to a notable dip in installations across the country. But while the short-term trend suggests a slowdown, industry experts remain optimistic about the long-term potential of rooftop solar.
📉 The Numbers Don’t Lie: Installations Are Down
According to the Solar Energy Industries Association (SEIA) and Wood Mackenzie, residential solar installations dropped by 13% year-over-year in Q1 2025, with 1,106 megawatts (MW) installed nationwide. That’s also a 4% decline from the previous quarter. This marks a continuation of the trend that began in 2024, which saw the residential sector contract in 22 states—including a five-year low in California [^1].
Analysts at BloombergNEF predict that total U.S. solar capacity will fall by 7% between 2025 and 2027, with a projected 1% annual decline through 2035 under current policy scenarios [^2].
🧾 What’s Behind the Drop?
1. Higher Interest Rates
The Federal Reserve’s continued efforts to tame inflation have made financing solar systems more expensive for homeowners. The result? Fewer consumers are willing to commit to the upfront investment, even with long-term savings in play [^3].
2. Policy Shifts in Key States
California, long considered the leader in solar adoption, rolled back its Net Energy Metering (NEM) 2.0 program in favor of NEM 3.0, which significantly reduces the value of solar exports back to the grid. Installations in the state fell sharply as a result [^1].
On the federal side, proposed cuts to the 30% Investment Tax Credit (ITC)—a major driver of residential adoption—have caused uncertainty in the market. According to Reuters, solar stocks plummeted following changes in a Senate tax bill that threatened to shrink or eliminate these credits [^4].
3. Tariffs and Supply Constraints
Tariffs on Chinese and other foreign-made solar panels have led to price increases and reduced availability. Simultaneously, battery storage components are experiencing shortages, further delaying installations and complicating project timelines [^5].
🌤 The Long-Term Picture: A Resilient Future
Despite the headwinds, many in the industry see this as a short-term correction rather than a lasting decline. SEIA projects a return to 9% annual residential growth from 2025 to 2030, particularly if financing conditions improve and federal incentives remain intact [^1].
Additionally, solar panel prices remain historically low, hovering around $2.50–$2.60 per watt installed. That affordability, coupled with increasing demand for home electrification and EV charging solutions, makes rooftop solar an attractive long-term investment [^1].
In a recent industry survey, 78% of solar installers said they expect to sell as much or more in 2025 than they did in 2024 [^3]. And while the market is down in states like California, others—including Texas, Florida, and Arizona—are continuing to grow.
✅ Final Takeaway
Yes, residential solar is currently in a downturn. But it’s more of a recalibration than a collapse. Regulatory turbulence and financial pressures are squeezing the market, but the fundamentals—affordability, environmental benefits, and technological advancement—remain strong.
The future of residential solar will depend heavily on stable policy support, affordable financing, and continued innovation. If those stars align, the industry could see another boom in the latter half of the decade.
📚 Sources
[^1]: SEIA/Wood Mackenzie. U.S. Solar Market Insight Q1 2025.
https://www.seia.org/us-solar-market-insight
[^2]: BloombergNEF. 2025–2035 U.S. Solar Outlook.
[^3]: SolarReviews. 2025 Solar Industry Installer Sentiment Survey.
[^4]: Reuters. Senate committee’s changes to tax bill slam US solar stocks. [June 2025]
[^5]: AP News. China dominates solar. Trump tariffs target China. For US solar industry, that means higher costs. [June 2025]
https://apnews.com/article/e0a764b42a6ba638a4201c5683f98a6b
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